What’s in, what’s out? Towards a rigorous definition of the boundaries of benefit-cost analysis

Economics and Philosophy ◽

10.1017/s0266267120000486 ◽

2021 ◽

pp. 1-17

Author(s):

Daniel Acland

Keyword(s):

Cost Analysis ◽

Willingness To Pay ◽

Low Cost ◽

Consumer Sovereignty ◽

Benefit Cost Analysis ◽

Rigorous Definition ◽

Pareto Criterion ◽

Definition Of ◽

Benefit Cost

Abstract Benefit-cost analysis (BCA) is typically defined as an implementation of the potential Pareto criterion, which requires inclusion of any impact for which individuals have willingness to pay (WTP). This definition is incompatible with the exclusion of impacts such as rights and distributional concerns, for which individuals do have WTP. I propose a new definition: BCA should include only impacts for which consumer sovereignty should govern. This is because WTP implicitly preserves consumer sovereignty, and is thus only appropriate for ‘sovereignty-warranting’ impacts. I compare the high cost of including non-sovereignty-warranting impacts to the relatively low cost of excluding sovereignty-warranting impacts.

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Contingent Valuation: Is Some Number Better than No Number?

The Journal of Economic Perspectives ◽

10.1257/jep.8.4.45 ◽

1994 ◽

Vol 8 (4) ◽

pp. 45-64 ◽

Cited By ~ 922

Author(s):

Peter A Diamond ◽

Jerry A Hausman

Keyword(s):

Cost Analysis ◽

Willingness To Pay ◽

Contingent Valuation ◽

Damage Assessment ◽

Survey Methodology ◽

Market Outcomes ◽

Benefit Cost Analysis ◽

Benefit Cost ◽

Embedding Effect ◽

Better Than

Without market outcomes for comparison, internal consistency tests, particularly adding-up tests, are needed for credibility. When tested, contingent valuation has failed. Proponents find surveys tested poorly done. To the authors’ knowledge, no survey has passed these tests. The ‘embedding effect’ is the similarity of willingness-to-pay responses that theory suggests (and sometimes requires) be different. This problem has long been recognized but not solved. The authors conclude that current methods are not suitable for damage assessment or benefit-cost analysis. They believe the problems come from an absence of preferences, not a flaw in survey methodology, making improvement unlikely.

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Valuing Children’s Fatality Risk Reductions

Journal of Benefit-Cost Analysis ◽

10.1017/bca.2019.10 ◽

2019 ◽

Vol 10 (2) ◽

pp. 156-177 ◽

Cited By ~ 7

Author(s):

Lisa A. Robinson ◽

William J. Raich ◽

James K. Hammitt ◽

Lucy O’Keeffe

Keyword(s):

Cost Analysis ◽

Willingness To Pay ◽

Risk Reduction ◽

Selection Criteria ◽

Primary Analysis ◽

Fatality Risk ◽

Benefit Cost Analysis ◽

Adults And Children ◽

Benefit Cost ◽

Consistent Approach

AbstractIn benefit-cost analysis, fatality risk reductions are usually valued based on estimates of adults’ willingness to pay for changes in their own risks, regardless of whether the risk reduction accrues to adults or children. This approach reflects the relatively large number of valuation studies that address adults; however, the literature on children is growing. We review these studies, focusing on those that estimate values for both adults and children using a consistent approach to limit the effects of between-study variability. We rely on explicit selection criteria to identify studies that measure reasonably comparable outcomes and are candidates for application to analyses of U.S. policies. The ratio of values for children to values for adults ranges from 0.6 to 2.9; however, most estimates are greater than 1.5. Although some studies suggest that the divergence between child and adult values decreases as the child ages, this finding is not universal. We conclude that analysts should test the sensitivity of their results to the use of higher values for children than adults. Additional empirical research is needed to support more precise estimates of the variation in values by age that can be featured in the primary analysis.

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Behavioral economics and policy evaluation

Journal of Benefit-Cost Analysis ◽

10.1515/jbca-2013-0022 ◽

2014 ◽

Vol 5 (1) ◽

pp. 89-109 ◽

Cited By ~ 3

Author(s):

Timothy J. Brennan

Keyword(s):

Cost Analysis ◽

Willingness To Pay ◽

Behavioral Economics ◽

Policy Evaluation ◽

Direct Democracy ◽

Cognitive Biases ◽

Policy Issues ◽

Benefit Cost Analysis ◽

Benefit Cost ◽

Benefits And Costs

Abstract:Behavioral economics posits a number of cognitive biases and limitations, which raises questions as to whether revealed willingness to pay equals true willingness to pay. If so, benefit-cost analysis, with a number of methodological advantages, would need to be replaced. Prior analyses of the issue by Sunstein, Sugden, and Bernheim and Rangel fail to offer guidance that would avoid substituting centralized judgments for decentralized information on benefits and costs. Alternatives including using post-implementation valuations, libertarian paternalism, and direct democracy on policy issues also have conceptual or practical limitations. A tentative suggestion is democratic delegation, somewhat appealing because it is already applied to cope with bounded rationality and non-efficiency values. Viewing benefit-cost analysis as a market analogue, and restricting the domain of behavioral economics to uninformed consumers, may be useful guides. The most important guidance may be to require very strong evidence of substantial choice failure before abandoning benefit-cost analysis.

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Willingness to pay and benefit-cost analysis of modern contraceptives in Nigeria

International Journal of Gynecology & Obstetrics ◽

10.1016/j.ijgo.2013.03.024 ◽

2013 ◽

Vol 122 (2) ◽

pp. 94-98 ◽

Cited By ~ 5

Author(s):

Obinna Onwujekwe ◽

Chinwe Ogbonna ◽

Ogochukwu Ibe ◽

Benjamin Uzochukwu

Keyword(s):

Cost Analysis ◽

Willingness To Pay ◽

Benefit Cost Analysis ◽

Modern Contraceptives ◽

Benefit Cost

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The Normative Implications of Political Decision-Making for Benefit-Cost Analysis

Journal of Benefit-Cost Analysis ◽

10.1515/2152-2812.1112 ◽

2012 ◽

Vol 3 (2) ◽

pp. 1-36 ◽

Cited By ~ 1

Author(s):

Kerry Krutilla ◽

Alexander Alexeev

Keyword(s):

Decision Making ◽

Cost Analysis ◽

Economic Consequences ◽

Political Activity ◽

Evaluation Standard ◽

Benefit Cost Analysis ◽

Political Costs ◽

Political Outcomes ◽

Pareto Criterion ◽

Benefit Cost

The Potential Pareto criterion, or Kaldor-Hicks standard, presumes that costs are not fully compensated. Yet, uncompensated costs can incentivize costly political activity and create uncertainty about political outcomes. These consequences are not reckoned in the standard benefit-cost analysis. This study models political costs and uncertainty as a function of project parameters and political-institutional characteristics. The economic consequences of political behavior are then incorporated into an adjusted project evaluation standard. This standard assures that the project’s conventionally measured net benefits are sufficient to cover political costs and uncertainty about the decision-making outcome.

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